What can I do about pension?

[0BSESSED]

I’m 49. Worked all my life, part time for fifteen of those years due to kids. I have always worked for non profit organisations so not great money.
I only have £25,000 in my pension pot. I read that you need £250,000 to be comfortable. I don’t need lots of money but am I going to be piss poor?
dh worked for himself and the business failed so he has no pension at all. He’s just inherited £100,000 though. But I think we will pay off mortgage with that.
have I just failed at life??
feel like such an idiot

What sort of pension pot do you people or normal people have?

I paid my mortgage off at 46 and started my pension then, I am also self employed. You can plough loads in with no mortgage!

I have a small shortfall because I took early retirement. I can top it up but won't bother. I can live off a smaller state pension, to complement my private pension. I'm over 10 years off state pension.

You still have time, but you now need to priorituse it over over savings. Put at least 20% of your income in.

I'd use the inheritance to clear the mortgage and then divert what were the monthly mortgage paymwnts in to a pension.

Unless your mortgage rate is very high, wouldn't you be better off investing the money in pensions because of compound interest? You're in a precarious position and time is the biggest factor when it comes to investing. Edit to add that I would get professional advice, not just assume one way or the other.

Thanks. Mortgage payments are £750 so we do plan to put that in his pension, is that unwise of me? What if we split up?

Umm. I'd split that and put £350 in each. In theory if you divorce there should be provision for pension sharing, but a lot of women forget this and get fucked over.

Don't be one of those women and end up poor in retirement.

Interesting. I wonder what he would think about that as he is the one with the inheritance. Perhaps we put the money in a separate joint account?

Hi OP,
First of all you have plenty of time.
Dependent on your mortgage rate you would probably be better off putting the inheritance into pensions. Preferably split evenly between the two of you. £25k in each of your pensions turns into just over £31k with tax relief. Assuming 6% growth over 10 years would turn it into over £200k (average long term returns being 7%).

Pay the mortgage off and divert the payments into both your pensions to maximise the tax benefits. Since you’re married it doesn’t matter whose name they’re in, if you divorce both the house and pensions will go into the pot to be shared.

Sorry should clarify that I meant £25k each this year and £25k each next year

Someone will be along soon with better advice but in your position, I'd encourage DH to set up some kind of pension for himself with at least part of that money - there are ways that self-employed people can do that - or at least start an ISA of some kind since the interest on that is tax free. The idea of stocks & shares is scary to me but longer term has been proven to give a better return than a cash ISA.

I wouldn't spend all the inheritance on the mortgage since when you are ready to retire, you can sell the property to pay off anything you might still owe and then, ideally, also have a lump sum for somewhere else. If you've put all the inheritance into the mortgage, all you will have is the property: you won't have any savings/pensions and when you sell the property you may lose money due to capital gains tax.

You say DH's business failed but what is he doing now? If he is working, he should be contributing to a pension so he could put some of the inheritance into that pension since you are currently allowed to contribute up to 30K extra into your pension each tax year.

Did he work for a company before he started the business? If so, he might have saved into their pension scheme so will have a little coming each month from that when he retires. Lots of people have several pensions coming from their different jobs over the years. Make sure you are the named beneficiary on all his pensions since they pass outside of a will. When my DH died, he had named me as the primary beneficiary but had designated a small percentage to each of our DDs. (MN is full of threads where the widow discovers that her DH has named someone else to receive his pension!)

If you are currently working, I'd look at maximising your pension contribution if you can afford a little less take-home pay each month. Does your employer have any helpful schemes like salary sacrifice? Also, if you have any savings, you are currently allowed to contribute up to 30K extra into your pension each tax year.

You ve gone part time because of your joint kids. He can now compensate you and boost your pension.

You have 18 years until state pension age. So plenty of time to save.

Just crack on with it immediately.

Look into starting a SIPP.
It is tax efficient, the Government actually tops up what you personally pay in – they’ll add 20% tax relief if you’re a basic-rate taxpayer,

If you've put all the inheritance into the mortgage, all you will have is the property: you won't have any savings/pensions and when you sell the property you may lose money due to capital gains tax.

This has to be challenged. To begin with capital gains tax doesn’t apply to your primary residence so that’s nonsense. Added to which if you pay off the mortgage the money currently used for repayment should be diverted to pensions so the money benefits from tax relief.

I assume you have checked your state pension statement and you will have sufficient qualifying years by the time you retire?

I just put your OP into Chatgbt, thought it would interesting! It might be worth you doing that to get a clearer picture and some ideas as your actions will depend upon your mortgage interest rate (if it’s high prob better to pay it off) when you want to retire etc. You maybe need to think about keeping some inheritance in an ISA as a buffer? Once you’ve paid off your mortgage or put into a pension that money is tied up/used.

You’ll get lots of differing advice, but I would pay the mortgage off and then plough as much money into your work pension as possible. You still have time.

I’d be worried too if I were you! For neither of you to have a pension pot at that age is surely concerning? Have you checked you’ve maxed out your national insurance contributions for state pension if you’ve only worked part time?
in answer to your question, I’m a year younger than you and have £220k in mine. Mortgage almost paid off. No dependents though.
id see an investment advisor about the £100k, if your mortgage rate is low or there’s penalties of paying it off early then it might be better elsewhere.

Even if you do stay together, you're better off doing this OP as I understand it, because then you'll both benefit from the tax threshold when you come to draw it. Whereas if it all goes into one pot, you'll potentially get taxed on it more due to how the tax threshold works.

There are different ways of doing this, personally I'd use the inheritance money to pay off the mortgage and then I would put any spare income into pensions for both of you. You've still got time before retirement to boost your pension pot.

I just put your OP into Chatgbt, thought it would interesting! It might be worth you doing that to get a clearer picture and some ideas as your actions will depend upon your mortgage interest rate (if it’s high prob better to pay it off) when you want to retire etc.

Under no circumstances should you ever use Chat GPT for financial advice. It's out of its remit. The AI tech I work with has a flat refusal to people asking for financial advice, IDK why OpenAI didn't put one in, but asking it for financial advice is a really really bad idea. Ditto legal advice and medical advice.

Are you both working now? If either of you has the option to join an employers pension, you should do that and contribute what is needed to maximise the employer contribition. You can only contribute what you earn into a pension. If one or both of you aren't earning your contributions are restricted to £2880 pa net which with tax relief is £3600. You don't need to have paid tax to get the tax relief.
It probably makes more sense to get as much of the inheritance as possible into pensions, but there's a lot to be said for that feeling of security of having paid off the mortgage.

Very good point.

Also, if he needs care then his entire pension will be used to pay for it and you’ll be left with nothing. Much better to split it.